Washington (August 26, 2002) -- The current fiscal year that began with a forecast of a budget in approximate balance now faces a deficit of $157 billion, placing in jeopardy possible further tax cuts, according to a new report.

According to the Congressional Budget Office report, $103 billion of the shortfall results from revenues that are lower for reasons other than the effects of legislation.

Although the CBO says the most obvious explanation for the shortfall is the recession, not all revenues are directly linked to the movement of overall economic activity. Some tax sources depend significantly on the behavior of asset prices, and on the division of income between taxable and nontaxable forms.

Without detailed tax return information, the CBO says the best conjecture of where the revenues went is where they came from in the mid- to late 1990s, when income tax receipts grew much faster than Gross Domestic Product did. To the extent the shortfall reflects overall economic activity, receipts will recover as the economy does. But to the extent that it reflects other causes, according to the report, the outlook is much more uncertain.

-- Electronic Accountant Newswire staff

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